Turkey Determined to Start Its Own Car Production?
The automobile giants of Europe, the US and Asia are all competing in Turkey to capture a portion of the local market. What the reaction of these companies will be when Turkey attempts to produce its own national brand remains to be seen as some argue this dream will face tough foreign resistance.
When Prime Minister Recep Tayyip Erdoğan expressed his ambitions to produce a “100 percent domestic” auto brand, the call had many excited. However, when one analyzes a bit more thoroughly and delves into the automotive sector, the ambitious desire to produce a national brand seems to be challenging, at the very least. The idea of producing a domestic automobile is not new for Turkey. The first attempt to create its own auto brand dates back to 1961 with a car called the Devrim. After making only four of them in the same year, the project was put on the back burner due to some unfortunate events. Until very recently, the idea of producing a 100 percent domestic vehicle in Turkey had not even been mentioned.
The engineering success that was achieved by producing the Devrim was short-lived. The auto sector in Turkey has since then become more import-dependent every year. While in the beginning it relied on import substitution, with advent of the customs union of the ‘90s and EU integration the sector relied heavily on the imports when it came to inputs.
While producing vehicles for the defense, agriculture and construction sectors, the Turkish automotive sector encompasses related sectors such as tire, glass, steel, textile and electronics production. It also is closely related to the marketing/dealership, service/parts and finance/insurance sectors.
To be able to produce a completely domestic car Turkey needs to produce all of its parts domestically, too. According to the data this will be a real challenge. The question of how realistic such a thing is also directs the topic to the current production structure of the Turkish auto sector.
According to Övünç Mantu, a senior analyst who specializes in the automotive sector in Turkey, looking at input cost would be a good starting point when deciding the import share in the industry. “When you look at the input costs the share of the raw materials takes up around 75-80 percent of the total cost of car production. To be able to determine the portion of imported inputs in the total production you need to see the figures paid in foreign currency,” he says.
Despite the lack of a comprehensive study on the import side of the sector, currently the ratio of imported intermediate goods in the auto sector is estimated to be around 60 percent. According to sources who wanted to remain anonymous due to their positions in the sector, of the 75-80 percent of raw materials costs, around 70 percent is imported materials. Therefore the import dependency rate of the auto sector could be calculated as being 60-65 percent.
This view is corroborated by a report prepared for the automotive and sub-industries symposium in 2007. It is stated in the report that with the increase in auto exports the portion of the cost of imported goods had reached up to 65 percent of total input costs. Most of the parts produced by the sub-sector were imported due to a lower exchange rate, thus leading to the closure of many domestic small and medium-sized enterprises (SMEs) that produce such parts, the report says.
Such foreign dependency should not lead people to think that Turkey lacks the ability to produce such parts. Again, according the sources, the main reason for such a high foreign import share is the fact that in Turkey the majority of the big auto producers have licensing agreements with their foreign counterparts and that according to these agreements the main parts are supplied by the foreign companies.
Sunday’s Zaman asked a variety of experts in the auto sector about Turkey’s capacity to produce every single part the auto industry needs and got a unanimous answer from all parties. The president of the board of the Organized Industrial Zones (OSB), Mahmut Yılmaz, Ankara OSTİM OSB chairman of the board Orhan Aydın and Sedat Çelikdoğan, the founder of successful corporations such as the Türk Motor Sanayi ve Ticaret A.Ş. (TÜMOSAN) as well as the Middle East Bearing Industry (ORS), all agree that Turkey has the capacity to produce all the necessary parts domestically.
However, all of the above are also unanimous in saying that the story does not end there. To be able to compete internationally, Turkey needs to create an auto brand that has a competitive advantage. As Yılmaz puts it, there should be enough production in terms of numbers to benefit from economies of scale. And as Aydın warns, on top of creating its domestic national brand, Turkey needs to make sure that the vehicles produced would be absorbed both domestically and by neighboring countries. “Those countries with whom Turkey has a good relationship have a total of up to 800 million people, and they represent a promising market. However, if you only produce 100,000 cars then you won’t be able to compete internationally unless the government backs it up fully,” Aydın says.
The steel used for railroad track, autos and high-rise construction all are products of advanced technology. In Turkey, in order to produce a national brand of car, most of this steel will have to be imported. There have been some attempts to overcome dependency on steel imports. Tosyalı Holding recently announced that with their latest investment they will be able to provide all of the steel necessary to produce track for high-speed trains and car production.
Government support seems to be at the heart of the matter in this case. The most crucial support the government provides are the resources they allocate for research and development (R&D) so that companies can develop the necessary technology and innovation to have a competitive advantage in the global market. On a positive note, responding to such calls the government announced an action plan in which it outlines the guidelines and necessary steps it will follow in order to support the creation of a national brand. This week Industry and Trade Minister Nihat Ergün announced the action plan according to which it will improve the R&D infrastructure and help companies increase their capabilities in design, production and branding as well as develop and explore domestic and foreign markets.
Istanbul Işık University Provost Murat Ferman says that Turkey’s many years of experience assembling cars should not be underestimated. He says that in order to be able to produce the whole car, specialization in details is also required, and that is where Turkey has valuable experience. “The important thing for Turkey is to develop strategies that will facilitate more efficient auto assembly to reduce the cost. You cannot be so efficient by producing 10,000 cars while the global brands do the same by producing millions. Henry Ford’s famous T-model story bears good lessons for everybody, he adds.
The most important part of producing the domestic brand should be one that has a competitive advantage in order to compete internationally. Taking into consideration the unstable energy prices in the world market, the concerns about the scarcity of oil reserves and global warming, the idea of producing alternative-energy cars has gained importance. The electric car emerged among the other types as a candidate to satisfactorily address all of those concerns. In Turkey the focus is also on electric car production, and recently Foreign Trade Minister Zafer Çağlayan informed the media that due to the lack of required technology, each battery necessary to produce electric car would cost 10,000 euros to import. “This is almost the cost of buying a new car, and what interests me is the share of domestic contribution in producing such car,” Çağlayan notes.
Then why not produce it in Turkey? According to Yılmaz, if the task is delegated to a group of universities Turkey will be able to develop the desired batteries for electric cars. “I know for a fact that Turkey has the necessary knowledge and engineering know-how to be able to produce such technology within months,” he says. Çelikdoğan states that although the types of batteries produced in Turkey are not powerful enough to be used for such purposes, there is enough potential to improve the quality if the sector is improved through R&D.
As an unquestionable expert in the field and the founder of a number of motor companies in Turkey, Çelikdoğan says that when producing its own national brand the most important thing is the “power package,” which comprises the engine itself, the transmission and fuel lines. “This is where the technology lies, and unless you have the necessary technology then producing the body of the car would not mean anything.” When Sunday’s Zaman asked whether Turkey in general and the company he owns in particular could become competitive in that field, Çağlayan notes that it depends on the government’s financial support. “Then we can produce a competitive power package with no problem. Remember, we already produce engines with up to 250 horsepower,” he adds.
Övünç says that assuming all of the challenges in the production side are resolved, there are some technicalities that would then need to be addressed as well. “As we know, in Turkey the majority of the big auto producers are bound by licensing agreements with their foreign counterparts. And thus, how those companies will get together to produce a domestic brand remains a question. It will be interesting to see how the main body of the company will be set up. Is it going to be all privately or state owned, or, rather, mixed? These are all of the technical questions that should also be addressed beforehand,” he says.
And the last fact: The automobile giants of Europe, the US and Asia all compete in Turkey in order to capture a portion of the domestic market. It’s no a mystery that when Turkey attempts to produce its own national brand, all of these sharks will sharpen their teeth, lowering their prices to rock bottom. The policies and competition strategies should be developed in the coming years.
The road to creating its own auto brand will not be an easy one for Turkey, and it will be a real test both for the government and the private sector. It may be possible, yet whether creating a national brand — taking all of the above facts into consideration — is feasible is yet to be seen.
17 April 2011
SOURCE: TODAYS ZAMAN
